Case study: Corporate Espionage

Ethics and Corporate Social Responsibility
MGMT 5900
Lawrence P. Filippelli

Jiayu Liang
Yingzhao Liu
Jue Li
Chaoqun Ma
Yuhao Li

May 11, 2014
Case Study: Corporate Espionage
Ⅰ. Introduction
Corporate espionage activities conducted to collect, analyze and manage competitors’ information illegally and unethically by organizations. In this era of high technology, many companies’ information systems are changing to web-based from paper-based. As a result, it’s easier and easier for companies to gather information of their competitors. It is bring a serious crisis to the society. The research showed that the theft of proprietary information made U.S. business lose billions of dollars a year. However, for the purpose of capturing a competitive edge in the market, many companies adventurously steal other companies’ information in an illegal and unethical manner. The case of Hilton and Starwood is a famous example.
Background of Hilton
Hilton Worldwide is an American global hospitality company, which was founded by Conrad Hilton in 1925. Started as a 40-room hotel, the company became one of largest worldwide chain hotels crossing five continents in about 90 years. It owns 11 brands including Waldorf Astorial Hotels & Resorts, Conrad Hotels & Resort and so on. Up to 2012, Hilton brands consists 3,897 hotels with 642,000 rooms in 91 countries. Hilton devoted itself to establishing a comprehensive service organization. Therefore, apart from serving excellent lodgings and food, Hilton provides cafes, meeting rooms, banquet halls, swimming pools, shopping malls, banks, post and telecommunications, airline, travel agency, car rentals and other service organizations and facilitates. Its success comes from building and firmly implementing its business philosophy, smile service. With this philosophy, it aims at making customers feel like at home.
Background of Starwood
Starwood Hotels and Resorts Worldwide is one of largest global hospitality and leisure companies. It was founded as a real estate investment trust in 1969. Until 1980, did it become a corporation. Nowadays, it owns 1134 hotels in 100 countries and areas around the world. As a world-renowned brand, Starwood is a company combining hospitality, management and sales and other features. It owns St. Regis, The Luxury Collection, Westin, Sheraton, Four Points, Le Meridien, W Hotels, Aloft and Element. It carries out a loyalty plan call SPG, which plays a leading role in the industry all the time. Members can acquire points and convert into lodging, room upgrade and airline without restriction of date.
Background of Case of Hilton and Starwood
In 2009, Starwood accused Hilton of corporate espionage, stealing private documents and then using as blueprints to create a new brand (Starwood v. Hilton, 2010). This lawsuit started with that Hilton hired away two Starwood’s key executives, who were take charge of the luxury and lifestyle brand in Starwood. Starwood’s W hotel keeps proceeding in this market segment. In order to develop its lifestyle brand, Hilton hired these two experts. When recruited by Starwood, both executives signed a document called Non-Solicitation, Confidentiality and Intellectual Property Agreement, Which restricted them to reveal confidential Starwood information out of the company. However, before and after leaving Starwood, both executives break their commitment by providing confidential documents and information of Starwood to Hilton.

Ⅱ. Case Law
Hilton loses the opportunity to continue its Denizen brand hotels and even delay to do the similar hotel brand after two years, due to the corporate espionage lawsuit settlement which between Hilton and Starwood.
The legal controversy was first filed in April 2009 by Starwood, only after Hilton returned the documents to Starwood. Consequently, Starwood accused Mr. Klein and Mr. Lalvani who was hired by Hilton through Starwood that stole more than 100,000 which included starwood